Tough task for Chávez’s new finance chief

Surging inflation and falling growth are unlikely to be cured by the guerrilla-turned-lawyer who became Venezuela’s ninth finance minister in as many years on Tuesday, local analysts say. Alí Rodríguez Araque, a former ambassador to Cuba and president of PDVSA, the state-run oil company, is expected to maintain a centralised economic policy characterised by exchange and price controls. President Hugo Chávez named him for the post on Sunday. Considered one of Mr Chávez’s most trusted followers, Mr Rodríguez is tasked with revitalising an economy beset by an inflation rate running at more than 30 per cent, while growth slowed to 4.8 per cent in the first quarter from 8.8 per cent last year. An adviser to Rafael Isea, his predecessor, said there would be policy continuity under Mr Rodríguez, who fought under a Marxist insurgency in the 1960s, and went on to become Mr Chavez’s energy and foreign minister, most recently serving as ambassador to Cuba.

“Alí Rodríguez is a very pragmatic man, and has excellent management skills,” the adviser said. “As former PDVSA president he also understands the international markets.” Nevertheless, Efraín Velázquez, president of the National Economic Council, which advises the government, was pessimistic about the prospects for a more orthodox economic policy. “It is difficult to generate anything other than inflation due to the inconsistencies of the current economic strategy,” he said, explaining the government boosted demand through heavy spending at the same time as limiting supply with a poor investment climate. In a bid to counter these problems, Mr Chávez last week unveiled a series of measures designed to stimulate private investment, although he insisted he would not cut spending, as key regional elections approach in November. The measures included scrapping a financial transactions tax, easing currency controls for importers, increasing subsidies for the agricultural sector and establishing a $1bn fund for projects to boost manufacturing and food production.

The package, while considered mildly positive, was widely believed to be insufficient to deal with serious economic imbalances caused by controls, heavy public spending and a poor business climate. Mr Chávez’s overture to the private sector, after a series of nationalisations alarmed investors earlier this year, come at the same time as a number of other U-turns over policies that have generated widespread disapproval. These include calling for leftwing Colombian guerillas to end their decades-long struggle against the government and shelving a controversial education law that it was feared would lead to indoctrination, as well as a spy law that many worried would stifle dissent. “Elections approaching, problems with Colombia, economic distortions and inflation – there are all sorts of reasons restricting the government’s ability to pursue a more radical agenda,” says Michael Penfold, an analyst at Caracas-based consultancy Ecoanalitica, who says Mr Chávez has steered a more pragmatic course in recent weeks.

“What we are seeing is a typical process of Venezuela just muddling through,” he says. Although economic policy is expected to remain similar under Mr Rodríguez, there is a question mark over certain policies, such as a planned debt buyback, which has caused risk spreads on Venezuelan government debt to narrow recently. A new debt management programme this year enabled Mr Isea – who after less than six months left to run for a state governorship in the forthcoming elections – to succeed in reversing the runaway devaluation last year of the parallel, unregulated value of the bolivar, Venezuela’s currency. Analysts say the official rate is heavily overvalued.